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These 2 Catalysts Are Behind Novavax, Inc.'s 12% Rise in May

By Sean Williams - Jun 7, 2017 at 11:12AM

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Novavax shows signs of life, but it's far from out of the woods.

What happened

Shares of Novavax (NVAX -8.57%), a clinical-stage biotech focused on the development of recombinant nanoparticle vaccines and adjuvants for the treatment of respiratory syncytial virus, surged 12% during the month of May, according to data from S&P Global Market Intelligence. Two clear catalysts appear to have led to the charge higher.

So what

The first boost came early in May when Novavax reported its first-quarter earnings results. The clinical-stage vaccine developer, as Wall Street expected, delivered a loss. However, the Street had been looking for Novavax to lose $0.17 per share, and the company reported a $43.9 million loss, or $0.16 per share. This was $0.01 per share narrower than expected, and well below the $77.3 million lost in the year-ago period. Revenue also increased by 35% to $5.7 million due to a grant, but it slightly missed the Street's estimate. 

A happy woman standing in front of a rising stock chart.

Image source: Getty Images.

Long story short, Novavax is effectively using its capital, and it ended the quarter with $211.2 million in cash and cash equivalents, which isn't too far behind its current market cap. Some investors might view this large amount of cash as an intriguing downside buffer.

The second positive catalyst were a handful of Securities and Exchange Commission filings that showed some insider purchasing last month. Two directors and two officers of the company acquired an aggregate of 305,000 shares between May 10 and May 11 at prices ranging from $0.84 to $0.97 per share. Though we're only talking about roughly $277,000 in insider buys, which is a veritable drop in the bucket to a nearly $300 million market cap company, it nonetheless inspires hope among investors that the company's board and management team are putting their own money on the line and aligning their interests with that of shareholders.

Now what

Even though it was a good month for Novavax shareholders, and the company is valued at a reasonably slim premium over its cash on hand, investors in this stock could still be playing with fire.

A doctor administering a vaccine to a senior.

Image source: Getty Images.

The reason is that its lead vaccine, RSV F for respiratory syncytial virus (RSV) in adults over 60, flopped miserably in phase 3 trials last year. The company is reworking a mid-stage study for this indication, because it believes its vaccine has the ability to be the first RSV vaccine on the market for older adults. However, with shrinking cash on hand and the odds seemingly against it, Novavax shareholders are essentially betting on a Hail Mary.

To be clear, this doesn't mean RSV F can't make a comeback or that it won't succeed in an ongoing maternal immunization trial. But it does mean that investors would be smart to hold on the sidelines until we have some semblance of positive data from its RSV vaccine before dipping their toes into the water. Without any positive data, Novavax's $211 million in cash and cash equivalents is only going to take it so far, cost-cutting or not.

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